On Wednesday, the Reserve Bank of India announced a 35-basis-point increase in the repo rate to 6.25 per cent. The RBI Monetary Policy Committee (MPC) voted to raise the rate to bring elevated inflation back towards its target of 4 per cent, governor Shaktikanta Das said.
The six-member MPC, which held its bi-monthly policy meeting from December 5 to 7, remained focused on withdrawing accommodation.
The MPC’s rate action was not unanimous, with 5 out of 6 members voting for the rate hike. The decision on the stance was also not unanimous, with 4 out of six members voting for the retention of the stance.
The Standing Deposit Facility rate – which represents the floor of the interest rate corridor, is now 35 bps higher at 6 per cent. The Marginal Standing Facility rate, which is the upper band of the interest rate corridor, has also been increased by 35 bps to 6.50 per cent.
The rate hike was in line with market expectations – A Business Standard poll of 10 respondents had predicted a rate hike of 35 basis points. At its current level, the repo rate is at its highest since February 2019. So far, in 2022, the MPC has raised the repo rate by 225 basis points.
The yield on the 10-year benchmark bond was last at 7.29 per cent, four basis points higher previous close. Bond prices and yields move inversely. Traders said that the initial weakness in bonds was owing to the repeated concern expressed by Das about persistent and sticky core inflation.